• USD/JPY failed to gain traction, despite rising US Treasury bond yields.
  • Federal Reserve officials are still expecting rates at around 5.25%, according to December’s 2022 dot-plots.
  • Manufacturing activity in the United States remains depressed, though a jump in input prices keeps traders worried about further Fed tightening.

The USD/JPY remains pressured, though capped by recent US economic data, as the US ISM Manufacturing PMI for February fell short of estimates. However, some subcomponents show that again prices are rising. The USD/JPY is exchanging hands at 136.08.

USD/JPY continues to consolidate after mixed US ISM Manufacturing PMI

US equities are trading mixed after the release of the ISM. The reading came at 47.7, below estimates of 48 for February, meaning that factories still feel the impact of the Federal Reserve’s (Fed) aggression. Delving into the report, the Prices Index rose to 51.3, past the 45.1 estimates, spurring a knee-jerk reaction in the US Dollar Index (DXY), and the USD/JPY spiked to 136.31.

Lately, investors have turned less optimistic about inflation in the United States (US). Money market futures are pricing the Federal Funds Rate (FFR) at around 5.25% -5.50% by June 2023, and no rate cuts throughout the year.

Earlier, S&P Global Manufacturing PMI for the US came shorter than the prior’s month data, at 47.3 vs. 47.8, a prelude of what was coming, later with data released by the ISM.

Federal Reserve officials insist on their hawkish rhetoric led by Neil Kashkari, President of the Federal Reserve Bank of Minneapolis. He said interest rates should reach 5.4% in December and stay at that level. He also mentioned that he would consider increasing rates by either 25 or 50 basis points during the upcoming Fed meeting and added that the dangers associated with not tightening monetary policy are greater than those of tightening it too much.

Contrarily, Atlanta’s Fed President Raphael Bostic believed that rates need to go as high as 5% – 5.25% and stood there “well into 2024.” He added that the economy has the momentum to support higher rates without a major downturn.

Despite the hawkishness provided by Kashkari, the USD/JPY failed to edge higher. Additionally, rising UST yields, like the 10-year benchmark note rate, approach the 4% threshold, but sentiment keeps USD/JPY traders on the sidelines, waiting for additional US economic data.

USD/JPY Technical analysis

The USD/JPY daily chart shows the major consolidating at around 136.00. Back-to-back doji’s in the daily time frame suggest that buyers and sellers are at equilibrium. The Relative Strength Index (RSI) is almost flat but nearby overbought conditions, while the Rate of Change (RoC) indicates sellers are gathering momentum.

For a bullish resumption, the USD/JPY must clear the YTD high of 136.91, so the pair might test 138.00. Otherwise, a fall below 135.25 would pave the way toward 135.00.

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